Has a tenant’s failure to complete its estoppel certificate ever threatened to delay the sale of your property or the closing of a refinance? For many owners, the answer is yes. A recent revision to the AIR lease forms attempts to solve this problem. If a tenant fails to timely deliver its estoppel certificate, its Base Rent increases by 10% for the remainder of the lease term.
A tenant’s timely delivery of an estoppel certificate can be critical. If an owner is selling or refinancing a property, buyers and lenders often require, as a condition to closing, that they receive the tenant estoppel certificates (or a threshold percentage of certificates). In a property sale, the failure of the seller to timely deliver sufficient tenant estoppel certificates may give the buyer the right to terminate the purchase agreement.
The AIR lease provides tenants with 10 days to complete estoppel certificates (Paragraph 16(a)). Until recently, if a tenant failed to deliver an estoppel certificate on time, the landlord had little recourse other than declaring a default. However, the AIR lease forms were revised to give landlords additional leverage. If a tenant does not deliver a completed estoppel certificate within the 10-day period, the AIR lease forms now provide that the Base Rent is increased by 10% for the remainder of the lease term. This provision is in Paragraph 16(b) and is highlighted below.
[A.I.R. Forms Practitioner Tip: When landlords send estoppel certificates to tenants, they should consider informing their tenants that failing to timely deliver the estoppel certificate may/will result in a 10% increase in Base Rent.]
Some tenants use an estoppel request as an opportunity to negotiate with their landlords. Tenants know that landlords are often desperate for completed estoppel certificates in order to close a sale or refinance. After this AIR lease revision, tenants who negotiate at this critical time are playing a high-stakes game as they risk a Base Rent increase of 10% for the remainder of the lease term.